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Tuesday, June 30, 2009

I was watching the comedians on the Communism Channel, and they said "Hooray! Bernard Madoff was sentenced to 150 years in jail!"

The fnord is "Bernard Madoff did something wrong and was punished. Therefore, everyone who does something wrong gets caught and punished. Therefore, there are no structural flaws in the economic system."

The mainstream media also focuses on punishment-based justice instead of compensation-based justice. "Bernard Madoff spends the rest of his life in jail!" is completely separate from "Restitution must be paid to the victims!" In the criminal trial, it's "State vs. Madoff" and not "victims vs. Madoff".

Who should be responsible for reimbursing the victims?

the accountants who worked for Bernard Madoff (Some of them did get arrested and charged with fraud.)

all the people who worked for Bernard Madoff

all the brokers and hedge fund managers who invested in Madoff's fund, or advised people to invest in Madoff's fund

all the people working at the SEC, who are responsible for overseeing security industry fraud

Madoff's relatives; Madoff gave them property over the course of his life, and allegedly he sent them a bunch of property just before he turned himself in (That's a tough calculation. If you're one of Bernard Madoff's children, then how much of your personal property was directly received from your father?)

If all of the above people had their personal assets confiscated, and were required to work the rest of their lives to repay the loss, then the victims would receive much greater compensation. In the present, there is no incentive for a financial advisor to notice a fraud, collecting huge commissions in the meantime.

People can claim "I was just working for Bernard Madoff! I was tricked also! I shouldn't be responsible!" That is false. Whether a broker knew (or should have suspected) that Madoff's fund was a fraud, or if he was just plain stupid, he should be responsible either way. If "I was stupid!" is a valid defense, then what incentive is there for anyone to behave intelligently?

There are simple precautions that would have uncovered the fraud. A statistical analysis of returns would have shown very high returns with very low volatility, which is a fraud tip-off. An SEC investigor could have requesting trading records, and would have noticed the fraud.

The SEC and Federal government have a monopoly for enforcing the security industry. Whenever the State fails, via "Problem! Reaction! Solution!", the end result usually is that State bureaucrats are given more power and more resources. Via SIPC insurance, some victims are being partially repaid. However, the SIPC money comes from other tax revenue collected. Due to this huge payout, SIPC insurance fees were raised. Anyone with a brokerage account or mutual fund or 401(k) pays higher commissions and fees to pay for the reimbursement to Madoff's victims.

There is no requirement that the SEC investigators personally reimburse the victims. They get to keep their cushy jobs and high salaries, even though they failed miserably. They can say "I was tricked!" as a valid defense.

Based on what I read, Bernard Madoff had the parasitic personality type, and was very skilled. I can't prove it, since I'm not a parasite, but skilled parasites usually are consciously aware of what they're doing. Very skilled parasites are usually aware of their manipulations. It's too well coordinated for it to be an accident. Most likely, Bernard Madoff isn't sorry that he did something wrong; he's only sorry that he got caught.

Bernard Madoff was a skilled parasite. If an SEC investigator started asking tough questions, then Madoff could have used his evil jedi mind tricks and said "There's nothing to see here!", and it would have worked. If necessary, Madoff could have used his political connections at the SEC to get an honest investigator fired. The SEC investigators were consciously or subconsciously aware of this, and refrained from asking tough questions.

Whenever an investor started asking Madoff tough questions, he merely gave them their money and forced them out of the fund. A skilled parasite refuses to deal with people who can see through his manipulations. Many people thought that they were lucky to be allowed to invest with a genius like Madoff, and eagerly handed over their money. If you have the abused productive personality type, it's easy to be manipulated by someone like Madoff. If you have the parasitic personality type, you'll just read Madoff's emotional state, which said "I am super-awesome!"

Politicians and banksters and CEOs and hedge fund managers are criminals as much as Bernard Madoff. They just aren't as flagrant as Bernard Madoff. The key point is the Principal-Agent problem or the "other people's money" problem. Whenever you control resources that you don't own, the incentive is to line your pockets at the expense of the people who are trusting you with their property. Bernard Madoff went too far and crossed the line. Most members of the parasite class only loot a couple of percent a year. Bernard Madoff had a 100% looting rate. When a CEO grants himself and his friends equity in the corporation, diluting shareholders, he's stealing as much as Bernard Madoff; the only difference is the rate of the theft.

In a true free market, it'd be unlikely for someone to build up a huge $50B+ investment fund. There would be no barriers to entry, and there would be many small funds. If someone was running a dishonest fund, then the incentive would be for their competition to say "That guy is running a fraudulent business!" A private police agency would probably pay a fee to someone who uncovered a fraud, for helping to protect their customers' property. In the present, libel laws prevented anyone who suspected Madoff from publicly criticizing him. If I wrote a "Madoff is running a dishonest fund!" post before his fraud was uncovered, then I probably would have been sued for libel. Also in a true free market, all of Madoff's accountants and employees and brokers would be personally liable. There would be no incentive for them to look the other way and ignore the fraud. If Madoff's books were backed by the reputation of an accounting association, then *EVERY* member of the accounting association would be personally liable. A private police agency would probably also sell insurance in the event of investment fraud; they would have an incentive to notice problems.

In the present, it's impossible to buy insurance against the possibility that you will be ****ed over by your investments. I bought shares of Citigroup and Bank of America, and suffered a huge loss. I'm the victim of fraud as much as Bernard Madoff's victims. Now I know better. In the future, I'm planning to invest more of my savings in physical gold and silver. For *ANY* State-licensed paper investment, you will lose your savings to theft/fees/fraud/waste/inflation.

Whenever an insider is caught doing something wrong, there's an evil fnord. "This person did something wrong and got caught. There are no structural flaws in the economic system that need to be addressed!" A common evil fnord is "Blame the evildoer, and not the corrupt system that enabled him." Whenever there's a big disaster, blame is deflected from the corrupt system and focused on the individual who was exploiting a corrupt system for his personal benefit.

3 comments:

If "I was stupid!" is a valid defense, then what incentive is there for anyone to behave intelligently?

Hey FSK... and Amen to that. I think Bernie's grandfather pulled the same shit back in his day. I read or heard that on NPR or something. Anyway I'm still following your blog and hope you are doing well my friend....

Although a Agree with your previous postings that the bulk of the blame lies with the investors themselves for not diversifying there assets, as well as not questioning there ultra high returns, I can't agree with #2.

2. all the people who worked for Bernard Madoff

It's been well documented that the employees that Madoff had working for him had little experience or knowledge in the investment world. The bulk of them with the exception of a few accountants didn't have a clue what Madoff was doing. The clerks, IT staff and other supporting workers can't be blamed any more, then the decisions CEO's made at Worldcomm or Enron.

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Personal Finance

For personal finance, my most frequently visited site is Yahoo Finance. Yahoo Finance has the best system for watching your stock quotes during the day. I also like the Motley Fool. Both of these websites encourage you to do independent thinking about finance.

My favorite discount online broker is Vanguard. They are not the cheapest commission-wise, but their customer service has been excellent. Plus, they give a high credit interest rate on the cash portion of your account.

Mises, Rothbard, and Austrian Economics

The school of "Austrian Economics" advocates credit-based money instead of debt-based money. There are two separate websites, www.mises.org and www.mises.net. These philosophies are a precursor to agorism. However, they still hold out false hope that the people who control the government can be convinced to switch to a fair monetary system. They fall short of the correct conclusion that government itself is the problem.

The Mises and Austrian school is still a pro-State theory of economics. They say "government should adopt a sound monetary policy instead of an unsound monetary policy". They fall short of the truth, which is "Who needs a government?"

Agorism and Anarcho-Capitalism

The primary source most commonly cited is agorism.info. Agorism.info has good introductory material, but I'm already looking for more advanced topics. I also found TOLFA interesting. The Molinari Institute has a lot of interesting links.

The source with the most advanced material on agorism is Kevin Carson's The Mutualist Blog.

This link on the History of Money has a lot of interesting bits on how bankers have controlled the world's money supply for hundreds of years or longer. Unlike most other sources, it is very short and to the point. However, their recommended solution falls short of true agorism.

Freedomain is another good read. He doesn't update his blog often, but he has a lot of good stuff posted in the past.

Kevin Carson's Mutualist Blog - This is a great source. He is tough to read at times, but his content is great. He's the best source on agorism I've seen. I like to take his topics and present them in simpler language. He updates his blog sporadically, but he has a lot of great content. It's also worth reading his other books and articles, which are available from his mutualist.org website. I also like the way Kevin Carson frequently links back to his favorite older posts. Kevin Carson's Shared Items is also worth reading; it's a list of posts from other blogs that he finds interesting.

Kung-Fu Monkey. This blog is written by someone who works as a writer in the entertainment industry, which explains the high quality of writing. He sounds like a closet agorist, although he hasn't specifically mentioned that philosophy. This post on the Extrapolated Everyday Bull**** Comparison has promoted Kung-Fu Monkey from my hitlist to my "read regularly" list.

Redpillguy's Blog - His blog is relatively new, so it's hard to judge. He doesn't really update his blog that often. On the other hand, he frequently cites my content, and that's certainly the sort of thing I appreciate.

Tranarchism is another new blog. It's too soon to judge the content. On the other hand, anyone who heavily cites my stuff can't be all bad. It's too infrequently updated.

Wally Conger's Blog is another good read. However, he really has two separate blogs mixed together. He has a lot of good stuff on agorism and libertarianism. However, he also likes to talk about his favorite movies and TV shows a lot.

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Honorable Mention

These blogs have some interesting content, but they don't make it into my regular reading rotation. If they improved their content or improved their posting frequency, then they would be in my regular reading list. I check back occasionally, and on a slow day I might read them.

Bill Rempel - He talks about finance and trading. He really dislikes the Federal Reserve. I'm not sure if he's come all the way to agorism yet, but perhaps he can be coaxed. He's guilty of my #1 blog pet peeve: A PARTIAL RSS FEED!

Bored Zhwazi - Has some nice content, but it really isn't updated that often. It's worth checking back once every month or two.